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Pr. 4-119Income statement, including corrections During calendar 2017, Scone Corporation reported income from continuing operations of $800,000 (after taxes). In addition, the following information, which has not yet been considered or included in the above figure, has been revealed: 1. In 2014, Scone adopted the average cost method of inventory valuation. Prior.
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Ex. 4-110Comprehensive income Sunshine Corporation had the following balances at December 31, 2017 (in thousands): preferred shares $3,012; common shares $4,718; contributed surplus $1,750; retained earnings $16,791; and accumulated other comprehensive income $514. During the year ended December 31, 2017, the company earned net income of $3,613,000, sold common shares of $30,000,.
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Ex. 5-97Notes Describe the purpose and appropriate use of notes to the financial statements.How should notes be presented, and what information should they provide?Name an area of the financial statements for which notes are frequently used. Ex. 5-98Contra or adjunct accounts The use of contra or adjunct accounts is common in financial statement.
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Ex. 4-114Cash basis Argent Inc. reported the following information for their 2017 fiscal year: Revenue on the income statement.........................$114,000 Accounts receivable, Jan 1...............................3,200 Accounts receivable, Dec 31.............................6,120 Unearned revenue, Jan 1................................1,200 Unearned revenue, Dec 31...............................1,840 Instructions Calculatethe revenue for the year on a cash basis. Ex. 4-115Accrual basis Discover Inc. reported the following information for their 2017 fiscal year: Cash receipts.
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41. Groucho Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31, 2017 included the following accounts: Accounting and legal fees................................$140,000 Advertising...........................................160,000 Freight-out............................................80,000 Interest..............................................70,000 Loss on sale of long-term investment.......................30,000 Officers' salaries.......................................225,000 Rent for office space....................................220,000 Sales salaries and commissions..........................170,000 One-half of the rented premises is occupied by.
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Ex. 5-93Statement of financial position The following statement of financial position was prepared by the bookkeeper for Hauser Company as of December 31, 2017: Hauser Company Statement of Financial Position as of December 31, 2017 Cash$95,000Accounts payable$85,000 Accounts receivable (net)52,200Bonds payable100,000 Inventory62,000Stockholders' equity238,500 Investments76,300 Equipment (net)106,000 Patents32,000        $423,500$423,500 The following additional information is provided: 1.Cash includes the cash surrender value of a life.
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Ex 4-106Calculation of net income Heron Ltd. had the following information for 2017: Assets, January 1......................................$250,000 Assets, December 31...................................230,000 Liabilities, January 1....................................150,000 Common stock, December 31............................80,000 Retained earnings, December 31..........................41,000 Common stock sold during the year........................10,000 Dividends declared during the year........................13,000 Compute the net income for the year. Ex. 4-107Terminology In the space provided, write the word or phrase that is.
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11.Earnings management is a) the process of managing a business. b) the process of profit maximization. c) always fraudulent. d) manipulating income to meet a targeted earnings level. 12.Limitations of the income statement include all of the following EXCEPT a) items that cannot be measured reliably are not reported. b) only actual amounts are reported in determining.
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Ex. 5-83Terminology In the space provided at the right, write the word or phrase that is defined or indicated. 1.A company's ability to take effective______ actions to alter the amounts and timing of cash flows so it can respond to unexpected needs and opportunities 2.Claims to future cash flows that are______ fixed and determinable 3.Short-term, highly liquid investments______ that.
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Ex. 5-99Statement of cash flows For each event listed below, select the appropriate category, which describes its effect on a statement of cash flows: a) Cash provided/used by operating activities b) Cash provided/used by investing activities c) Cash provided/used by financing activities d) Not a cash flow ____              1.Payment on long-term debt ____              2.Issuance of bonds at.
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Exercises Ex. 5-79Earnings quality An analysis of the financial statements of Scion Inc. shows that net income is significantly higher than cash flows from operations.What does this indicate about the quality of Scion’s earnings?Where else can analysts look for further information? Ex. 5-80Creditworthiness; debt to total assets Explain why a high debt to total.
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Ex. 4-88Income statement performance assessment Explain how the income statement can be used to evaluate an enterprise’s past performance and profitability.What other information might be useful for performance and profitability evaluation? Ex. 4-89Income statement information about future cash flows How might stakeholders use the income statement to help assess a company’s expected cash.
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Pr. 4-121Multiple-step income statement Shown below is an income statement for 2017that was prepared by a junior accountant atFritter Corporation. FRITTER CORPORATION Income Statement December 31,2017 Sales revenue..................................................$975,000 Investment revenue..............................................19,500 Cost of merchandise sold.........................................(408,500) Selling expenses................................................(155,000) Administrative expense...........................................(215,000) Interest expense................................................(13,000) Income before special items.......................................203,000 Special items Loss on disposal of a segment of the business.....................(30,000) Major fire loss...............................................(80,000) Net income tax liability............................................(27,900) Net income.....................................................$ 65,100 Instructions In good.
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PROBLEMS Pr. 4-117Discontinued operations Bagel Corporation operates several stores in British Columbia (Vancouver, Victoria, Kamloops, Penticton and Prince George).The restructuring of its organization on November 20, 2017 has led to the decision to sell its Prince George store. In preparing financial statements at December 31, 2017, the following information was made available: 1.The.
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Ex. 5-105Calculation of cash flow and ratio Dawe Corporation reports the following information: Net cash provided by operating activities....................$285,000 Average current liabilities................................150,000 Average long-term liabilities..............................100,000 Dividends declared.....................................60,000 Capital expenditures....................................110,000 Payments of debt......................................35,000 Instructions Calculate the following: a) Cash Debt Coverage Ratio b) Free Cash Flow *Ex. 5-106Calculation of ratios Keefe Enterprises reported the following: Net sales.............................................$285,000 Average trade receivables...............................150,000 Cost of Goods Sold.....................................100,000 Average Inventory......................................60,000 Average total assets....................................110,000 Average.
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61.Free cash flow is calculated as net cash provided by operating activities less a) capital expenditures. b) dividends. c) capital expenditures and dividends. d) capital expenditures and depreciation. 62. One of the benefits of the statement of cash flows is that it helps users evaluate financial flexibility. Which of the following explanations is a description.
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Ex. 4-112The OSC and non-GAAP measures In an effort to curb to potential confusion created by non-GAAP earnings discussed in Exercise 4-111, the OSC has issued a staff notice on these disclosures.Briefly explain what this notice states issuers should do.Why do you think the OSC is particularly interested in streamlining these.
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Pr. 4-124Cash to accrual accounting Cupcake Corporation maintains its records on the cash basis. You have been engaged to convert its cash basis income statement to the accrual basis. The cash basis income statement, along with additional information, follows: CUPCAKE CORPORATION Income Statement (Cash Basis) For the Year Ended December 31, 2017 Cash receipts from.
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Ex. 5-103Ending cash balance Caldwell Corporation reports: Cash provided by operating activities.......................$280,000 Cash used by investing activities..........................110,000 Cash provided by financing activities.......................140,000 Beginning cash balance.................................70,000 What is Caldwell’s ending cash balance? Ex. 5-104Statement of cash flows ratios Financial statements for Comet Ltd. are presented below: Comet Ltd. Statement of Financial Position December 31, 2017 AssetsLiabilities & Shareholders’ Equity Cash.......................$ 44,000Accounts payable......$ 28,000 Accounts receivable...........39,000Bonds.
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Ex. 5-81Liquidity, solvency, and financial flexibility Explain the relation between the concepts of liquidity, solvency and financial flexibility. Ex. 5-82Limitations of the statement of financial position The statement of financial position has many limitations. One of these limitations is that it necessarily leaves out many items. Of greatest concern to investors are omitted.
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Ex. 4-98Comprehensive income Oiseau Inc. reported the following for 2017: Net Sales Revenues....................................$1,470,000 Cost of Goods Sold.....................................850,000 Selling and Admin expenses.............................210,000 Loss on disposal of equipment............................(12,000) Unrealized Gain OCI....................................14,000 Instructions Prepare a statement of comprehensive income.Ignore income tax and EPS.Assume Oiseau follows IFRS. Ex. 4-99Definitions Provide clear, concise answers for the following: 1.What are revenues? 2.What are expenses? 3.What are gains? 4.What are losses? 5.How.
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Ex. 4-108Statement of changes in equity TotelLtd. reported the following balances at January 1, 2017: Common shares.......................................$370,000 Retained earnings......................................70,000 Accumulated other comprehensive income..................71,000 During the year Tote earned net income of $310,000 and generated other comprehensive income of $64,000. Instructions Prepare a statement of shareholders’ equity for the year ended December 31, 2017. Ex. 4-109Statement of retained earnings Mondial.
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51. In a statement of cash flows, payments to acquire debt instruments of other entities (other than cash equivalents) should be classified as cash outflows for a) operating activities. b) investing activities. c) financing activities. d) lending activities. 52.A statement of cash flows prepared under the INDIRECTmethod adds and subtracts certain items to the base.
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81. Assuming that none of the errors were detected or corrected, and that no additional errors were made in 2019, by what amount will current assets at December 31, 2018 be overstated or understated? a) $2,000 overstated b) $10,000 understated c) $10,000 overstated d) $0 Feedback: $0 Use the following information for questions 82–83. For Pear Limited,.
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Ex. 5-89Valuation of statement of financial position items Use the code letters listed below (a – k) to indicate, for each statement of financial position item (1 – 13) listed below, the usual valuation reported on the statement of financial position. a) No par value b) Current cost of replacement c) Amount payable when.
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21.Which of the following is NOT a current liability? a) unearned revenue b) derivatives c) stock dividends distributable d) trade accounts payable 22.Working capital is a) capital which has been reinvested in the business. b) cash invested by owners. c) cash and receivables less current liabilities. d) current assets less current liabilities. 23.An example of an item which is NOT.
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31.The single-step income statement emphasizes a) the gross profit figure. b) total revenues and total expenses. c) discontinued operations and accounting changes. d) the various components of income from continuing operations. 32.Which of the following is NOT a generally practiced method of presenting the income statement? a) including corrections of errors made in a prior period b).
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41.The financial statement which summarizes operating, investing, and financing activities of an entity for a period of time is the a) retained earnings statement. b) income statement. c) statement of cash flows. d) statement of financial position. 42.On a statement of cash flows, the enterprise’s main revenue-producing activities are disclosed in the a) operating activities. b) investing.
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Ex. 5-101Statement of cash flows basic format Illustrate the basic format of the statement of cash flows. Ex. 5-102Cash provided (used) by operating activities Willows Corporation reports the following information: Net income...........................................$320,000 Depreciation expense...................................70,000 Increase in accounts receivable...........................30,000 What amount should Willows report under the cash provided (used) by operating activities portion of their statement of cash.
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Ex. 4-102Income statement classifications Indicate the major section or subsection of a multiple-step income statement in which each of the following items would normally appear: a)Advertising b)Depreciation of head office building c)Dividend revenue d)Freight-in e)Loss on disposal of a segment of the business, net of tax f)Income taxes on income g)Major fire loss h)Purchase discounts i)Sales discounts j)Officers' salaries k)Freight-out l)Sinking fund income Ex..
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Ex. 4-104Nature versus function of expense presentation IFRS requires a business to present an analysis of expenses based on either “nature” or “function.” Explain what this means. Ex. 4-105Understandability/disclosure trade-off Explain briefly the trade-off between understandability and full disclosure.Would statements provided to external users have more or less detail than internal management reports?Why? .
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31. In Venus’s December 31, 2017 statement of financial position, the current assets total is a) $5,955,000. b) $5,595,000. c) $3,060,000. d) $4,495,000. Feedback: $675,000 + [$2,895,000 – ($90,000 x 4)] + $2,385,000 = $5,595,000 32. In Venus’s December 31, 2017 statement of financial position, the current liabilities total is a) $2,435,000. b) $2,695,000. c) $2,200,000. d) $2,114,000. Feedback: Note the.
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21. The calculation of Earnings Per Share is generally based on which income figure? a) Other Comprehensive Income b) Income from Discontinued Operations c) Net Income d) All-Inclusive Income 22.When a company disposes of a discontinued operation (segment), the transaction should be included in the income statement as a gain or loss on disposal, and.
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71. The IASB issued an Exposure Draft (ED) in May 2015 entitled “Conceptual Framework for Financial Reporting” including proposed changes to the definitions of assets and liabilities.For most assets and liabilities, applying the new definition a) yields the same accounting results as the current definition. b) results in more conservative reporting of.
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61. Regarding presentation of discontinued operations, under IFRS, on the balance sheet, an entity must classify held-for-sale assets as a) current assets/liabilities. b) current or non-current, depending on their nature. c) availablefor sale assets. d) silly question: Assets held for sale do not appear on the balance sheet. *62.The accrual basis of accounting a) must be.
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Ex. 4-94Calculation of net income from the change in shareholders' equity Presented below is selected information pertaining to Pullman Enterprises Ltd. for last year: Assets, January 1......................................$240,000 Assets, December 31...................................320,000 Liabilities, January 1....................................120,000 Common shares, December 31...........................60,000 Retained earnings, December 31..........................20,000 Common shares issued during the year.....................2,000 Dividends declared during the year........................32,000 Instructions Calculate the net income for last year. Ex..
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Ex. 5-91Statement of financial position classifications The various classifications listed below have been used in the past by Mercury Ltd. in its statement of financial position. The corporation asks your professional opinion concerning the appropriate classification of each of the items 1–14 below. a) CurrentAssetsf)CurrentLiabilities b) Investmentsg)Long-Term Liabilities c) Property, Plant and Equipmenth)Capital Shares d).
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MULTIPLE CHOICE QUESTIONS 1. When assessing earnings quality, financial analysts are concerned that management may attempt to manipulate information to make earnings appear better or worse than they really are. Which of the following would NOTsuggest poor earnings quality? a) reduction of the allowance for doubtful accounts b) consistent application of GAAP c) significantly.
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11.Monetary assets include a) cash, accounts receivable and inventory. b) accounts and notes receivable and inventory. c) cash, accounts and notes receivable. d) accountsreceivable and property, plant and equipment. 12.Financial instruments do NOT include a) cash. b) inventory. c) derivatives. d) accounts payable. 13. Non-monetary assets include a) accounts and notes receivable and inventory. b) accounts receivable and property, plant and equipment. c).
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Ex. 5-95Subsequent events Explain the importance of considering subsequent events before financial statements are issued.What two types of subsequent events should be considered prior to financial statement issuance? Ex. 5-96Contractual disclosures and ethical consideration Contractual obligations should be disclosed in the notes to financial statements when they are significant.Considerable judgment is needed to.
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Ex. 5-85Account classification Although the Statement of Financial Position can be classified and presented in several ways, the major subdivisions noted in Illustration 5-1 tend to be closely followed. Explain how following these classifications contributes to the financial statement objectives of representational faithfulness and transparency. Ex. 5-86Current liabilities Define current liabilities without using.
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Ex. 4-100Discontinued operations HibouLtd., a private company based in Vancouver, decided to sell its Industrial Design Division. After two years of losses and heavy competition, a plan to dispose of the division was put in place. At the end of 2017, the plan was finalized and approved by the board of.
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Ex. 4-96Comprehensive income Tarzana Corporation completed its first year of operations on December 31, 2017. Results and other information for the year included the following: Sales................................................$810,000 Cost of goods sold.....................................320,000 Operating expenses....................................94,000 Unrealized holding gain from investments (accounted for under the fair value through comprehensive income model).....31,000 Instructions Based on the information provided, prepare a combined statement of.
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Ex. 5-87Current assets Define current assets without using the word “asset.” Ex. 5-88Account classification ASSETSLIABILITIES AND CAPITAL a) Current assetsf)Current liabilities b) Investmentsg)Long-term liabilities c) Property, plant and equipmenth)Preferred shares d) Intangiblesi)Common shares e)Other assetsj)Contributed surplus k)Retained earnings l)Items excluded from statement of financial position Using the letters above, classify the following accounts according to the preferred statement of financial position presentation. ____             .
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71. The following information is available for Royal Corp for 2017: Accounts payable, beginning.............................$14,000 Cash payments on account during year.....................7,000 Purchase discounts taken during year on 2017 purchases......1,200 Purchases............................................10,000 Assuming that all purchases are made on account, accounts payable at the end of the year are a) $17,000 b) $22,800 c) $15,800 d) $24,000 Feedback: $14,000 – $7,000+$10,000 – $1,200.
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Ex. 4-92Earnings management Explain the concept of earnings management.Why is it of concern to investors and financial statement users?Do you think this practice should be allowed? Ex. 4-93Earnings management Consider the practice of earnings management.Describe a scenario where a company might have an incentive to report lower earnings.Describe some earnings management approaches they.
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Exercises Ex. 4-86Value creation Describe the concept of value creation.Does the value creation process look the same for all companies?Explain. Ex. 4.87Representational faithfulness Consider the concept of representational faithfulness.Explain why an understanding of the business and industry is essential to performance of an audit, and how this relates to the fundamental characteristic of representational.
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Pr. 4-123Income statement and retained earnings statement Macaroon Corporation's capital structure consists of 20,000 common shares. At December 31, 2017 an analysis of the accounts and discussions with company officials revealed the following information: Sales................................................$1,200,000 Purchase discounts....................................18,000 Purchases............................................720,000 Earthquake loss (net of $18,000 tax) ......................42,000 Selling expenses.......................................128,000 Cash................................................60,000 Accounts receivable....................................90,000 Common shares.......................................200,000 Accumulated depreciation...............................180,000 Dividend revenue......................................18,000 Inventory, January 1, 2017...............................152,000 Inventory, December 31,.
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